Posts Tagged industry

Regulation Uber Alles


In nearly every study of state-by-state economic competitiveness Pennsylvania ranks near the bottom.  The most recent Keystone Business Climate Survey conducted by the Lincoln Institute found 53% of business owners and chief executive officers think our business climate is getting worse, only six percent think it is improving.

State government is doing everything in its power to prove them correct.

Two recent cases of regulatory excess and job crushing taxation illustrate the point.  The first involves the ride sharing company Uber; the second is the vaping industry.  Ride sharing and vaping have little in common aside from the fact both are being victimized by state government over-reach.  Sadly, they are just the latest example of how public policy in Penn’s Woods discourages business growth and job creation.

In the case of Uber it is an un-elected government regulatory agency, the Pennsylvania Public Utility Commission (PUC) that has levied an $11.4 million fine because the firm supposedly operated for six months without the appropriate license.  I use the word supposedly because the Uber concept was so innovative it did not fit neatly into any existing regulatory category.  What we have here is not a company flaunting the law, but a hyde-bound bureaucracy unable to keep pace with technological advancements.

Rather than work with Uber, the regulators flexed their muscle by issuing a cease and desist order – which Uber ignored.  Uber thus committed the greatest of sins: failure to bow before the power of the bureaucrats.  So out-of-bounds is the fine that Governor Tom Wolf and Republican legislative leaders urged the PUC to reconsider.  Those folks don’t normally agree on much, so their unity on behalf of Uber was striking.

For its part Uber remains committed to Pennsylvania.  The company is testing a new driverless system in Pittsburgh.  Apparently if such a system can navigate the circular roads, hills and bridges of the Steel City it will work anywhere.  That research has brought much needed jobs to the southwestern part of the state – something the PUC apparently failed to take into consideration.

It’s not just regulators who are crushing jobs; some legislators are doing their part.  After splurging on $1.4 billion in new spending in this year’s budget lawmakers went in search of the revenue to pay for their spending spree.  Part of the answer was to impose a 40% tax on vaping stock.

Vaping is an alternative to smoking that utilizes what is in effect a personal vaporizer to turn vaping liquid or juice into steam.  Such liquids can be infused with various amount of nicotine – or none at all – and has been known to help smokers quit using tobacco products.  As vaping has become more popular mom and pop vape shops have sprouted across the commonwealth.

A 40% tax on any product or service is excessive, but in the case of the nascent vaping industry it is a killer.  Since the tax is applied to any items in stock at the time the tax takes effect next month it will crush many if not most of the small businesses.  For example, if a shop had $100,000.00 of vaping stock on hand they will immediately have to write the commonwealth a check for $40,000.00.  For some that exceeds their annual profit margin.

The end result is one of the few industries available for first time or small entrepreneurs will close and disappear, or the industry will be dominated by a few larger operations capable of surviving the tax onslaught.  The end result will be fewer small businesses, lost jobs and fewer choices for consumers.  Oh, and those sales and personal income taxes paid by the vape shops, they go away too.

The General Election campaign is now underway with half of the state senate and the entire state house on the ballot.  This is an excellent time for voters to demand their elected officials stop imposing job killing taxation on businesses and call upon them to reign in the power of regulatory agencies.  Unless a stand is taken at the ballot box Pennsylvania has no hope of shedding its well-deserved reputation as an unfriendly place to do business.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal.  His e-mail address is lhenry@lincolninstitute.org.)

Permission to reprint is granted provided author and affiliation are cited.

, , , , , , , , , , , , , , , , , , ,

Leave a comment

Natural Gas: Location, Location, Location


By Lowman S. Henry

There is an old adage in the real estate business that three factors affect the price of a property: location, location, location.   It is a truism that might also be adopted by Pennsylvania’s natural gas industry. Not only is the commonwealth blessed by abundant reserves in both the Marcellus and Utica shale regions, but our geographic location has the state poised to take advantage of a potentially enormous export market.

The exportation of liquefied natural gas could be the next big economic boom for Pennsylvania. Drilling in the Marcellus shale region has yielded a bounty of new natural gas supplies, so much so that prices have begun to dip. The industry has tremendous room for production growth, so the opening of new markets is essential. Pennsylvania, with its access to ports, has the ability to move liquefied natural gas products from the well head to foreign markets in a cost-efficient manner.

To understand the size of potential foreign markets it is important to grasp the versatility of natural gas liquids. Hydrocarbons, including ethane and propane, serve as key components for the manufacturing of plastics, and for the chemical industry. The gas is used as fuel for heating and cooking, and can also be blended into vehicle fuel. The demand for such products is expected to grow dramatically as emerging economies across the globe continue to develop. Therefore, gas products produced in Pennsylvania have the ability to literally fuel both domestic and international economic growth.

Already Penn’s Woods has seen an economic revival due to the development of the Marcellus Shale industry. Production of natural gas liquids from the Marcellus region is estimated to exceed 1.6 billion gallons per year by 2015. More manpower will be needed to extract that gas, and a PricewaterhouseCoopers study estimates up to one million new jobs could be created by 2025.

Adding further to the potential of this resource is the fact that estimates of gas trapped in the Marcellus Shale reserve continue to be revised upward. Estimates of gas available in the Utica Shale region also continue to evolve. Thus, projections of production levels and potential job creation may be vastly underestimated as the industry and government gets a better handle on the size of the resource available for development.

The Marcellus Shale industry has already had a transformative effect on vast swaths of Pennsylvania that previously had languished economically for decades. The potential to create a sizable export industry for natural gas liquids will not only keep that boom alive, but will expand the economic benefits to other regions of the commonwealth as the product is transported to foreign markets.

More broadly, an upsurge in natural gas exports will have a positive effect on the current U.S. trade deficit. Reducing that deficit means less borrowing from China and other nations that already hold a significant amount of U.S. debt. Increased capacity will also help lessen the Russian stranglehold on the industry, giving the U.S. a key new card in international diplomacy.

The problem, as always, is government. The federal government must act quickly to grant approval for more exportation of natural gas liquids. And here in Pennsylvania, state government must resist the urge to kill off a promising surge in gas exports by throwing up regulatory roadblocks or enacting new taxes on the industry. The success of the natural gas industry has been viewed by some lawmakers as a potential piggy bank for funding pet projects. But, it is a truism that if you want less of something tax it, and placing a “success tax” on the natural gas industry is a surefire way of preventing the industry from reaching its full potential and stifling the creation of much needed new jobs for Pennsylvanians.

Governor Tom Corbett has stood firm in his opposition to the enactment of job-crushing new taxes, but as the gas industry expands its export component look for renewed pressure by the spending interests to extract higher taxes. The fact is tax revenues – from corporate, personal income, sales and other taxes – will rise naturally because of the expanded economic activity created by development of a natural gas liquids export market. That, and not higher tax rates, is the pay-off to government.

Pennsylvania has been blessed with a golden opportunity to reinvigorate its economy, put our citizens back to work, and contribute significantly to the nation’s energy independence. Time will tell if our state government will be a partner in this progress, or a roadblock to success.

(Lowman S. Henry is Chairman & CEO of the Lincoln Institute and host of the weekly Lincoln Radio Journal. His e-mail address is lhenry@lincolninstitute.org.)

, , , , , , , , , , , , ,

Leave a comment